Regarding servers in particular, there is an exemption in minimum wage law for servers based on the assumption that a portion of their wages will come from tips. To illustrate, if minimum wage is $7.00, the employer is only required to pay $4.20 per hour wage. He can assume the other $2.80 will come from tips. The server is required to report tip income to the employer. If it's less than $2.80, the employer must make up the difference. Of course, if it's more than $2.80, the IRS wants to know and collect tax on it. Naturally all servers are totally honest and report every $ of tip income....... and pigs can fly.

(The illustration is based on my fuzzy recollection of Illinois practices but is accurate in the principles involved.)